Firm-Level Factors and Country-Level Factors and the Success of Lenovo - Case Study Example

FIRM-LEVEL FACTORS AND COUNTRY-LEVEL FACTORS AND THE SUCCESS OF LENOVO Name Institution Professor Course Date Introduction Emerging markets multinationals are expanding across the world. These multinationals are more and more competing with the most important global firms for customers and businesses. In the Fortune Global 500 list of the globe’s biggest firms in 2012, seventy-three firms were Chinese, eight were from India, eight companies were Brazilian and seven companies were Russian (Boscor, Bratugu & Baltescu 2013). All these nations are emerging markets. From 1980s, new Multinationals from developing markets have entered the global business setting. The development in information technology, cheap capital and governments policies have driven multinationals from emerging economies to obtain access to novel markets through different market entry strategies such as strategic alliances, partnerships and acquisitions. In addition, MNCs from emerging markets have expanded internationally because of access to raw materials and the reduction in the dependence on domestic markets. Dependency on political choices besides lack of market systems prevented companies from emerging markets from entering the international markets. In the last twenty years, numerous multinational corporations from emerging markets such as the Chinese Lenovo have become successful. Drawing from institutional theory and drivers of Lenovo expansion and entry strategies into international markets, this essay presents an assessment of firm-level and country-level factors that enhance the success of multinationals from emerging markets. The essay also underscores the major lessons that global business managers can learn concerning the interplay between the firm and country-level factors. Theoretical Framework Drawing from the institutional theory, institutional environment can powerfully influence the success or failure of business compared to market pressures. According to Warmer and Rowley (2009), institutional theory posits that internationalisation practices of organisations are compelled by not only efficiency consideration, but also the need to conform to institutional isomorphic pressures that are produced by the social environment. In emerging economies, internationalisation strategy of a firm is determined by its ownership advantage and by informal and formal institutional environment within which the firm is entrenched. The institutional theoretical framework stresses the impact of institutional environment on a firm’s strategy. Government regulations and policies are some of the institutional determinants of the internalisation strategy and success of a firm (Chan, Finnegan & Sternquist 2011). The institutional impact on firms’ performance differs from nation to nation. This is in the view of the fact that institutions are established and maintained in their routes by highly localised and dependent procedures in the country. The policy makers and institutions have made unequivocal the objective of helping the global expansion of Chinese companies. They have made efforts to develop globally recognisable brand that commensurate the developing international influence of China. The government’s facilitation of global expansion is compelled by the need to lower the foreign exchange reserves of China. The institutions offer protectionist and nationalistic tones. Numerous Chinese firms including Lenovo have surfaced to challenge the conventionally prevalent international firms. Market involvement by the government of China promotes competitiveness indicators in the foreign markets. Lenovo Within twenty-five years, Lenovo, a Chinese enterprise has become a global player in the PC market. In 2015, Lenovo marked the tenth anniversary of its purchase of IBM’s PC business. The company has evolved from a Chinese small PC maker firm to one of the world’s innovative technology firms. Over the past ten years, Lenovo has attained incredible development in its business to become the number one PC maker, number three smartphones and tablets makers in the world (Lenovo 2016). The company grew from a small government sponsored venture established in China to a powerhouse recognised by the entire world populace for its superb PCs. Chuanzhi Liu established the company in 1984 with only a team of ten engineers (Lenovo 2016). The initial business of Lenovo comprised of distribution and installation of foreign computers to households in China. However, the company has expanded internationally and retained a good position in the international market because of its ability to develop novel products categories that promote the experience of consumers and drive growth. According to Agtmael (2008), Lenovo has rapidly grown from unknown upstart to the most recognised computer brand in China. After the acquisition of IBM’s ThinkPad in 2004, Lenovo became one of the world PC producers in the world alongside Dell and HP. Following the purchase of IBM, Lenovo has risen to the world number one PC with a market share of over 20% and sales growth of 39 billion dollars (Lenovo 2016). After acquisition of IBM PC, Lenovo has made several other acquisitions steering the firm for prospective development in high-revenue and high-growth markets. No other firm can match Lenovo diversity. The firm products base includes PCs, tablets, servers and smartphones. According to Yuanging Yang, Lenovo’s CEO, and the purchase of IBM’s PC changed Lenovo into an international company (Lenovo 2016). Following institutional support, Lenovo serves more than 160 nations to make the biggest PC vendor in China and the world’s largest PC Company. Established by Lenovo Group’s, the company manufactures markets and develops technology services and products. The firm builds on product innovation, highly effective international supply chain, powerful strategic implementation and customisation, and localisation in every nation to produce mobile phones, PCs and mobile internet devices. The strong market presence of Lenovo is enhanced by its leading Chinese market position. Lenovo has been successful as a multinational corporation from emerging market because of the economic perspective of institutional forces as well as the sociological perspectives of institutional influence. According to Warmer and Rowley (2015), firms should recognise that they require both social legitimacy and economic efficiency to survive and succeed in a challenging business environment. Boscor, et al. (2013) asserts that firms tend to enter the closest markets from the cultural and geographical point of view before expanding into more distant markets. The most essential drivers of the international expansion of emerging economies are the firm specific advantages and country specific factors. Firm-Specific Factors The most essential competitive advantages are associated with innovation and technology. The Lenovo group is not new to innovation and advancement in technology (Gao 2015). To address increasing competition, Lenovo adapt measures for augmenting the trust of potential and real customers in the quality of its services and products. The firm is continuously creating novel categories of products that improve the experience of customers. Lenovo uses the acquisition strategy to enhance its technology. The firm exploits the ownership benefits based on reduced labour costs. More so, the firm invested abroad after attaining a powerful competitive position in its domestic market and following accumulation of exceeding resources and experience. Lenovo has obtained international business experience and had access to international networks and improved technologies. The firm has acquired novel managerial and technological knowledge and has helped it to succeed in becoming an international player in the field of computers. According to Boscor et al. (2013), other firm specific that determines the international success of Lenovo include alliances. In January 2015, Lenovo announced its strategic alliance with Zenoss, a U.S based firm that provides unified analytics and monitoring software for virtual, cloud-based and physical IT. Chinese firms tend to depend on strategic alliances because local partners enhance entry into foreign markets. Strategic alliances are a major driver of international expansion and are a good vehicle to sharing and developing new technologies. Lenovo as one of the world’s biggest PC producers has gained international success through technological capability and coherency. The firm drives business through creativity and innovation. Lenovo hold a rich talent pool and employs over 30,000 persons in over sixty nations. Aceto (2015) asserts that human capital and international experience influences the international success of multinationals from emerging economies. Coff and Raffiee (2015) affirm that human capital is a firm-specific aspect that sustains competitive advantage of a firm. In addition, the size of a company affects its success in the global markets as it affects the number of talented employees and increased level of innovation. The innovation of products is at the core of Lenovo’s international success. The end goal of the firm’s R&D teams is to ensure that affordable commodities link with evolving customers’ needs and add value besides improving the experience of customers. The firm fosters a culture of innovation where innovation and creativity forms part of the firm’s DNA. Organisational capacity to be innovative is a key determinant of its continued existence and success (Story, Boso & Cadogan 2015). Given the adequacy of financial and managerial resources and greater production ability, Lenovo is devoted to delivering durable, reliable and high-quality products that attain the demand of consumers. Employees are influenced to share their innovative ideas. The innovation department at Lenovo frequently pushes for the recent science and technology news to Research and Development teams and puts in place brainstorming sessions with the firm’s dedicated employees (Gao 2015). The innovative designs of Lenovo underpin the international success of the firm. For instance, the innovative design of Yoga Tablet has tremendously hit the tablet market with almost two million tablets sold ever since the tablet was launched (Gao 2015). At the company, creative concepts and IP (Intellectual Property) congregate. The firm’s IP strategy is a crucial part of the production design procedure and innovation cycle. The firm’s R & D teams work together with the firm’s IP lawyers from the conception, manufacture and commercialisation of products to establish product IP policies for novel products. For Chinese firms to expand and be successful in the global markets, they must make sure that their intellectual properties rights are protect globally (Gao 2015). Besides, international experience and the size of a firm, the age of the firm decides the international success of the firm. Lenovo has been operational for three decades, hence its international success. According to Kuil (2008), Lenovo, China’s number one PC manufacturer successfully competes against global computer giants like HP and Dell because of competitive advantages that include low-cost manufacturing, an efficient value chain and strong domestic customer base. Through its acquisition and strategic alliances, Lenovo has raised its global presence in developed markets like America and Europe. Country-Specific Factors The success of Chinese form of capitalism interminably contests the prudence of extensively accepted democratic free market systems. According to Marinov and Marinova (2011), state ownership and control of privately and publicly owned companies have established an environment where firms utilises resources offered by the local institutional environment to triumph over firm-specific disadvantages. Marinov and Marinova (2011) assert that firm specific disadvantages would prevent firms from competing productively in the international markets. The adopted system for Chinese firms allows the Chinese central government to exercise its control over internationalising firms through compensating for lack of natural resources needed for economic growth. The institutional role in the success of Chinese firms in the international markets contributes to the comprehension of the blueprint of outward Foreign Direct Investment and the motives of Chinese globalising firms. The Chinese institutional environment had shaped the qualities of Lenovo and other internationalising firms. According to Boscor et al. (2013), the government and the policies espoused are an important driver of international success and expansion of multinationals from emerging-markets. For instance, the Chinese government support technology development of local firms as well as investments in innovation. The Chinese government uses the broad network of Chinese living overseas to promote the sales of Chinese products in the world given that social networks can facilitate transnalisation of firms. The Chinese government has established a ‘go global policy’ that inspires Chinese firms to enhance their competitiveness through investing overseas. More so, the Chinese government creates infrastructure that promotes the nation’s capabilities through attracting investment and supporting R & D (Sun, Pen, Ren & Yan 2012). Economic liberalisation and the reduction of tariffs and other barriers have enhanced the success of Lenovo and other firms from China. Lenovo has gained access to novel resources and have invested in over 160 countries. Lenovo has gained international success in the PC market following economic and political stability besides supportive culture and institutions and government policies. The effects in variances in a country’s culture and institutions influence the success of multinationals from emerging economies. Before entering any foreign market, Lenovo undertakes market research besides analysing the cultural, political and cultural environment of the host nation. Lenovo utilises intellectual resources, funds and local culture to make quality products and services. Lenovo integrates cultural components in its business strategy and forms technological partnership with major international markets such as the Zenoss. Although the institutional theory has provided insights into the country-specific factors, it does not provide adequate insights into firm-specific factors that promote the international success of MNCs from emerging markets. The theory centres on societal norms or external requirements and rules that affects successful internationalisation of MNCs from emerging markets. However, the theory closes the gap amid organisational factors and societal and legal aspects. Lessons for International Business Managers The above analysis demonstrates that multinationals from emerging nations encounter numerous challenges while internationalising. Some of the challenges are firm-specific and country-specific. Lack of experience in the international market, lack of innovative ideas, unsupportive government policies, lack of adequate and effective managerial and financial resources, cultural issues, economic and political instability are some of the challenges MNCs from emerging markets encounter while internationalising. In this view, firm-specific aspects and country-level facets play a major role in the success or failure of emerging nation’s multinationals. Managers should understand that firm-specific facets and country-level factors interact to facilitate international expansion. For instance, firm-specific factors such as innovation cannot assist a company to attain a considerable market share in an international market if the local government does not provide supportive policies and stable business environment. Aceto (2015) asserts that a resource that provides a firm-level advantage in one country can mislay its aptitude to support that advantage in another country. According to Asmussen (2011), economic and political steadiness of a nation offers MNCs the chance to integrate their activities across national borders via product standardisation, rationalisation of production and control of R & D. Analysis of country-level factors helps MNCs to identify market flaws and gaps in the market and take advantage of them to attain a competitive edge. More so, analysis of country-specific aspects helps MNCs from emerging nations to identify and lower market risks (Peng & Beamish 2014). Managers should understand that the external environment of a firm greatly influences the success and strategic direction of the firm. As a result, international business managers should pay attention to both firm-specific aspects and country-level aspects. Profit earning and innovative efforts of MNCs are enhanced if a firm’s internal capabilities and external capabilities are carefully assessed. Government policies, firm’s capabilities and inventiveness besides adequate managerial and financial resources facilitate success and survival of MNCs from emerging nations. International business managers can enhance their internationalisation strategies design based on assessment of firm-level and country-level factors. They can use strategic alliances, partnerships and acquisitions to drive international expansion and integrate country-specific aspects and firm-specific aspects. International business managers must understand how MNCs from emerging economies alter the global competitive landscape and how the new players deconstruct the value chain and drive industry growth. The managers should invest in innovation and technology and focus on strategic alliances and acquisitions to compete on the global scale. Conclusion As the economy of China becomes the globe’s largest, Chinese multinationals rise to become key players in the international markets with respect to generated revenues and market share. Drawing from drivers of international expansion and institutional theory, firm-specific factors and country-specific factors determine the success or failure of MNCs from emerging economies. Institutional factors have greatly determined the internationalisation strategies of Lenovo where country-level factors such as state controls, legal system and supportive polices have enhanced the internationalisation process of the firm. However, firm-level factors have also enhanced the successful internationallisation of the company. Innovation structures that promote efficiency in technology have facilitated the continuous growth of the firm making it a key world player in the PC market. In this regard, international business manager should consider firm-level factors and country-level factors that affect the international expansion of their firms. They should understand that influence both firm-level factors and country-level factors promotes entry and success of MNCs from emerging nations in the international markets. References Aceto, K 2015, Emerging markets and the future of BRIC nations, UK, Edward Elgar Publishing. Agtmael, A 2008, The emerging markets century: How a new breed of world-class companies is overtaking the world, USA, Simon and Schuster. Asmussen, C 2011, Dynamics of globalisation: Location-specific advantages or liabilities of foreignness, USA, Emerald Group Publishing. 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